Long-shadow reversal candlesticks

Perhaps the most basic of all candlestick patterns are the long-shadow reversals, which tend to form at the end of short-term trending moves and signal the turn. These four candles all have small real bodies, one short or nonexistent wick, and one longer wick, which determines the candle’s proper description and interpretation.

The hammer and hanging man may be either ascending (white or clear) or descending (red or black) candles. They have small or no upper wicks, and long lower wicks, indicating the presence of both buying and selling pressure in the time period.
•    The hanging man forms at the top of an uptrend, indicating a bearish reversal and marking a resistance level for future trading. While bulls remained strong through most of the time period, sufficient selling pressure emerged to bring an end to the rally, at least for the time being.
•    The hammer forms at the bottom of a downtrend and signals a bullish reversal, as well as marking a support level for future trading. Bears were able to drive prices lower during early trading, but bulls entered the market in time for a strong finish, driving the price higher and almost back where it began.

Below is a partial chart, showing an uptrend interrupted by a short-term reversal of five candles. The three central candles are bracketed above and below by a hanging man and a hammer:

The inverted hammer and shooting star can also be either ascending or descending candles. They have small or no lower wicks and long upper ones, again indicating almost equal amounts of buying and selling pressure.
•    The shooting star forms at the top of an uptrend, signalling a bearish reversal and marking a resistance level for the future. Bulls maintained their buying pressure through much of the time period, but were finally overwhelmed by bears selling into a strong close, taking the price almost back where it began.
•    The inverted hammer forms at the bottom of a downtrend, indicating a bullish reversal and marking a support level. Although the bulls fought against the bears’ strong selling pressure, they weren’t able to move the price all that far.

Below is a partial chart, showing a downtrend interrupted by a short-term uptrend of five candles. The three in the midst of the little rally are bracketed by an inverted hammer and a shooting star:

While both the hammer and the inverted hammer are bullish signals, the hammer, with its close nearer the high, is more bullish because of the strong finish. In the same way, although both the shooting star and hanging man are bearish signals, the shooting star, with its close nearer the low, is more bearish.